Investors are awaiting a key inflation report to assess how long the Federal Reserve, led by Kevin Walsh, can hold steady amid persistently high oil prices caused by turmoil in the Middle East.

As the ongoing conflict between the US and Iran in the Strait of Hormuz threatens to break a month-long ceasefire, the bond market is being affected by oil price fluctuations. The 30-year US Treasury yield briefly reached 5.03% last week, marking its highest level since July. Since the outbreak of the conflict at the end of February, traders have not only priced out the possibility of a Federal Reserve rate cut, but have also begun betting that Waller, who is expected to succeed Powell as Fed Chair after his term ends this week, may need to raise rates next year. Interest rate swaps show traders estimate about a one-third probability of a rate hike by April 2027. An increasing number of Fed officials suggest that the next move could either be a rate cut or a rate hike. The risk lies in the fact that, with a stable labor market and increasingly loose financial conditions, robust inflation data may raise market expectations for further price increases, forcing the central bank to take action.